Bitcoin isn’t illegal because the US government doesn’t consider it currency

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Bitcoin enthusiasts were on the edge of their virtual seats a few days ago when the US government made an announcement on the state of so-called virtual currencies. The report was created by the Treasury Financial Crimes Enforcement Network (FinCEN), and basically extended money-laundering rules to virtual currencies like Bitcoin. The fear that Bitcoin would be outlawed turned out to be unfounded, but Uncle Sam’s rationale for allowing Bitcoin to exist was odd. You see, as it turns out Bitcoin isn’t money.

Bitcoin has been gaining popularity for the last few years, having just reached its all-time high value of nearly $100 per Bitcoin. Each Bitcoin is data, generated according to an algorithm and distributed to Bitcoin “miners” that contribute computing cycles to managing Bitcoin transfers. You can also buy and sell Bitcoins in other currencies.

The Department of the Treasury is drawing a line in the sand with this report. On one side are all the “real” currencies that exist and are issued by governments. Over on the other, murkier side, are all the trendy virtual currencies like Bitcoin. According to the Treasury, “virtual currency lacks all the real attributes of real currency.” It’s hard to disagree there — real things are real.

If FinCEN had decided Bitcoin counted as money, the logical next step would have been to ban its use in the US. The Constitution holds that Congress and the Treasury are to be the sole producer of legal tender in the country. It would have been a huge hit to the legitimacy of Bitcoin if it suddenly became illegal in the world’s largest digital economy.

There are still so many uncertainties when it comes to Bitcoin. The exchange rate fluctuates wildly, and attackers are always working out new ways to steal Bitcoins. Using Bitcoins also remains quite complicated. If these hurdles can be overcome, Bitcoin could find mainstream appeal. I’d wager the feds would have a little change of heart if that came to pass.